Inflation happens when the prices of goods and services increase. It can be caused by many factors, such as an increase in the cost of production or a decrease in the supply of money. When inflation occurs, businesses have to make less profit because they have to spend more money to buy the same amount of goods and services. However, there are still ways for businesses to grow during inflation.
Inflation is very much a reality for businesses and it doesn’t show any signs of going away. In fact, it has more than doubled between March 2021 and March 2022. This means that the prices of goods and services will continue to rise. Despite this, businesses can still grow from inflation with the right practices.
So, how can businesses still grow in the midst of an inflation?
Prioritise the most profitable products and/or services
One way is to focus on the most profitable products and/or services. This means prioritising and investing in assets that generate the most revenue and are likely to go up in value due to high demand, even if their prices have increased because of inflation. By doing this, businesses can offset some of the losses they may experience from other areas of their operations. In other words, they can still maintain a healthy bottom line despite the rising cost of goods and services.
A business can also consider offering discounts or promotions on products and services. This will serve well in enticing some customers who are hesitant to spend money due to rising prices. By offering deals, businesses can still make a profit while helping their customers save money.
There are a variety of ways that businesses can profit from inflation. By focusing on the most profitable areas of their operations and offering deals and discounts, businesses can offset some of the losses caused by rising prices.
Now is the time to also start thinking about ways to expand your customer base into new markets or demographics that demand your products and/or services. It’s also important to focus on retaining your existing customers, as they will be essential to keeping your business afloat during these tough times.
Monitor relative price changes in a high inflation economy
Businesses need to monitor changes in relative prices. When the prices of their inputs increase, they need to raise their prices accordingly in order to maintain their profit margins. Conversely, if the prices of their outputs increase faster than the prices of their inputs, their profit margins will expand. By carefully tracking changes in relative prices, businesses can adjust their pricing strategies to maximise their profits in an inflationary environment.
Another way to profit from inflation is to operate in multiple currencies. If a business’s costs are denominated in one currency but its revenues are denominated in another, it will be able to benefit from any differences in inflation rates between the two currencies. For example, if a company’s costs are denominated in Malaysian ringgit but its revenues are denominated in Singapore dollars, it will benefit from the Singapore dollar inflation as long as the Malaysian ringgit inflation is lower. This strategy can be used to hedge against the risk of inflation in a single currency.
Inflation can also be profitable for businesses that focus on real assets, if possible. Real assets are those that maintain their value over time, such as land or buildings. Inflation erodes the value of paper money, so businesses that hold real assets will see their net worth increase in an inflationary environment. This is why investors often seek out real assets as a hedge against inflation.
Automate and upgrade business operations
Inflation has been a problem for businesses for many years, but it’s not going away anytime soon. Many companies are trying to find ways to automate their operations and upgrade their systems in order to keep up with the rising costs. While this may not be the most exciting solution, it is a practical one that can help businesses stay afloat during these tough economic times.
From a business standpoint, it’s important to go digital for any industry. Thankfully, there are digital HR payroll software like Talenox that help thousands of companies digitise and automate HR processes. Talenox believes it is crucial that companies can still manage their HR tasks with ease, especially in these uncertain times.
Nominated Best Payroll Software by HRM Asia, Talenox helps thousands of businesses make payment flexibly throughout the month, as well as submit tax forms (i.e. Form IR8A for Singapore, Borang EA for Malaysia and Form IR56B for Hong Kong) that are fool-proof.
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Get strategic about pricing with inflation in mind
Inflation is something that businesses have to contend with on a regular basis. It’s important to be strategic about pricing in order to ensure that your business is able to profit from inflation.
One way to profit from inflation without alienating customers is to raise prices gradually. If businesses wait until prices have already risen significantly before increasing their own prices, customers may be less likely to notice or care. By raising prices gradually over time, businesses can stay ahead of inflation and maintain their profit margins.
There are a few different ways that you can go about this:
- Review your costs regularly and make adjustments to your prices accordingly. This way, you’ll ensure that your prices are in line with the costs of running your business.
- Keep an eye on the competition. See how they are pricing their products and services and use this information to inform your own pricing decisions.
- Be flexible with your pricing. Don’t be afraid to change your prices based on market conditions or the needs of your customers.
- Offer discounts and promotions. This can help to entice customers to buy from you, even when prices are increased.
- Communicate with your customers. If you explain why prices have gone up, they’ll be more likely to understand and accept the changes.
By following these tips, you can make sure that your business is able to profit from inflationary pressures.
Adopt a version of zero-based budgeting
In recent years, inflation has been on the rise in developed countries across the globe. This has led to an increase in costs for businesses, which in turn has squeezed profits. In order to stay afloat, many businesses have been forced to adopt a version of zero-based budgeting, where all expenses are closely scrutinized and only the bare essentials are kept.
While this may seem like a harsh measure, it is actually helping businesses become more efficient and leaner operations. By cutting out unnecessary costs, businesses are able to focus their resources on more important areas that will help them grow and succeed in the long run.
So far, zero-based budgeting has been working well for businesses in developed countries with high inflation rates. If this trend continues, we may see more businesses adopt this cost-cutting measure in order to stay profitable.
What is your opinion on zero-based budgeting? Do you think it is a good way for businesses to cut costs and become more efficient?